Picture a world turned on its head. Invert by 180 degrees the traditional map of the globe and the big powers of the northern hemisphere – the USA, Europe, Russia, China – tumble to the bottom. South Africa, meanwhile, sits at the pinnacle of one of two dominant continents. Cartographical trickery and geopolitical realities aside, it is a perspective of the planet Siza Mzimela might relate to as South African Airways’ first woman chief executive ponders Africa’s potential – and the role the Rainbow Nation’s flag-carrier can play in its bright future.
"We plan to pay a lot more attention to the continent,” says Mzimela, sitting in the boardroom of SAA’s headquarters next to Johannesburg’s OR Tambo International Airport, named after a hero of the liberation struggle. “We want an even stronger presence, driving intra-African routes.” The airline has launched several new services from its Johannesburg base in the past 18 months – including routes to centres of southern Africa’s burgeoning oil and copper industries. A possible new regional hub in west Africa – Ghana appears likeliest – could extend SAA’s reach north of the equator, allowing the airline to offer all-important east-west connections and a staging post half way to Europe.
Mzimela, who took the reins at SAA in 2010 after a seven-year stint at state-owned regional carrier SA Express, is the first to admit SAA’s “geographical location at the end of the hemisphere” is one of its “unique challenges”. Despite the promise of the sub-Saharan African economy, its markets remain small and projected growth in airline traffic is from a tiny base. Other headaches are less unique. Like every airline, SAA is being dragged down by its fuel bill, which – coupled with a weak rand – will push the carrier into loss when it reports its latest financial year. After two years of profits, Mzimela says the latest shortfall for the year to end March is almost entirely down to the increase in the price of fuel. “If fuel prices stabilise, there is no reason not to believe the airline can return to profitability,” she says.
Another challenge is the threat from Gulf airlines, which Mzimela accuses of “cherry-picking” African destinations traditionally served by SAA, offering travellers to and from Europe an alternative routing through Johannesburg. This is a particular issue in the leisure market, where travellers are happy to sacrifice time for cheaper fares through the Arabian hubs. “It is a huge challenge, as people don’t mind flying via Doha or Dubai,” she says. “We don’t have a problem with competition from European carriers, because they are competing on the basis of the size of their market.”
Add to that an ongoing struggle with the airline’s single government shareholder to secure capital to complete a fleet renewal and a sluggish South African economy, and Mzimela certainly faces an intriguing set of issues. Other blows in the past 12 months have included the acquisition of Star Alliance partner BMI by International Airlines Group, stopping SAA from offering connections from London, and prompting the axing of the direct Heathrow to Cape Town route after 20 years.
“British Midland was a huge blow for us and influenced our decision on Cape Town-London,” says Mzimela, who began with SAA as a route analyst in 1996. “We no longer have a carrier beyond Heathrow, and you are very limited when you don’t have that ability.” Instead, SAA is relying on the Frankfurt and Munich hubs of its German Star partner Lufthansa to provide many of its European connections. “Both these hubs are doing really well for us,” she says.
However, Europe is no longer the epicentre of SAA’s strategy. Two decades after the dismantling of apartheid and the re-opening of air connections stopped under sanctions, South Africa and its flag carrier are reassessing their place in the world. While Europe remains a major market for South African products – from wine to fruit and diamonds – and a huge source of tourists, other trading partners are increasing in prominence. A recent flat economy aside, South Africa is grouped with Brazil, Russia, India and China as one of the BRICS, the fastest-growing global economic players of the 21st century. Meanwhile, Africa’s yet untapped mineral and oil resources should see investment and prosperity eventually spread through the continent.
Despite the threat posed by the likes of Emirates, Etihad and Qatar Airways to its Africa market, Mzimela believes SAA’s southern hemisphere base can work to its advantage, offering shorter routeings between Brazil and parts of Asia, for example. “We currently offer 10 frequencies a week to Sao Paulo and fly three times a week to Argentina. We are the shortest way from Asia to Latin America,” she says. In addition, SAA plans to raise its Mumbai flight frequencies from four times weekly to daily. “We are doing what the Middle East carriers are doing in creating a global hub,” adds Mzimela half-jokingly.
EXPLORING NEW RELATIONSHIPS
Partnerships are key to developing the African market, she says. SAA already codeshares with Star partners Ethiopian Airlines and EgyptAir to two of the continent’s other hubs, Addis Ababa and Cairo. “We are working with them to develop new markets,” she says. Of SAA’s 38 foreign destinations, 26 are in Africa in 21 countries, and these are the airline’s most profitable routes. Besides southern Africa, SAA serves Burundi, Kenya, Rwanda, Tanzania and Uganda in east Africa, and several west African nations including Benin, Cameroon, Gabon, Ghana, Ivory Coast, Nigeria and Senegal.
A west African hub would allow it to increase city pairs and frequencies in the upper half of the continent. The route into the market could be via a joint venture, possibly using SAA’s low-cost Mango brand. Mzimela told a parliamentary committee in August that Ghana’s capital Accra was the most likely location and SAA would own 49% of the new airline with a local partner. It is not the first time SAA has tried to establish a secondary hub in Africa: a decade ago a venture with Air Tanzania ended in failure. However, Mzimela says: “We have learned from past lessons that it is very important that we have a strong and reliable local partner. Our efforts in Tanzania failed because there was no feeder traffic. In west Africa, we need to ensure that we have a strong feeder network.”
Southern Africa is also a major focus, with SAA serving neighbouring countries such as Angola, Namibia, Malawi, Mozambique, Zambia and Zimbabwe using its Airbus narrowbody fleet. In addition, Mzimela believes the airline can also expand Mango – which operates six leased Boeing 737-800s on domestic routes – into the leisure market, to destinations like Mauritius and Livingstone. Restrictions on frequencies are still an obstacle on several routes and SAA is working with the government to ease bilateral agreements in markets such as Angola, the Democratic Republic of Congo and Mozambique.
Mzimela sees the state ownership of SAA as positive. “One of the messages we have been trying to push is that our role is about much more than making SAA profitable. We contribute directly and indirectly to the South African economy,” she says. The airline plays a pioneering role in regional development. “It is about much more than us simply entering a market, say like DRC [Democratic Republic of Congo]. Air services can do so much to release the potential of the region,” she says. A mission to assess a new route will often involve a delegation from state airport operator ACSA to “see if they can play a role in developing infrastructure too”, says Mzimela. “We work closely with South Africa tourism, developing new markets for visitors to the country.”
However, as its owner, the South African government is also expected to bankroll SAA’s expansion. Although yield, revenues and load factors are all expected to rise in the latest financial year, the airline is short of funds for capital expansion. It is currently negotiating with Airbus and the government over how to finance an order for 20 Airbus A320s, due for delivery between mid-2013 and late 2017 to replace Boeing 737-800s.
On the widebody side, SAA wants to increase its fleet from 24 to around 30 aircraft. The carrier currently operates an all-Airbus twin-aisle fleet that comprises mostly A340-600/300s, as well as six A330-200s, since retiring its last Boeing 747 three years ago. However, it is due to start returning four of its eight A340-600s off lease next year.
Although Mzimela says SAA will decide on its fleet plans by the end of the year, she insists: “We have no intention of moving away from Boeing. We are not stuck to one manufacturer. We want more modern aircraft and we are determining what to do to achieve that.” Fuel costs are an important consideration. The airline is keeping its A330s, she says, but there are questions over the type’s four-engined sister.
With its fuel bill up 36% year-on-year, despite hedging, and the value of the rand down a fifth against the US dollar, Mzimela has begun a cost reduction programme. “Although a lot of things are outside our control – such as fuel, airport and navigation charges – there are things we can do,” she says. The airline is tightening routeings, aiming to use closer alternate airports on flights with extended twin-engine operations. “If we can source items from within the country rather than exporting them – say duvets for the cabin – we are looking at that,” she adds. In addition, Mzimela is aiming to better utilise the fleet. About 18 months ago, it began deploying widebodies, which were flying to long-haul destinations at night and being parked in the day, on daytime African routes. And, most importantly, SAA will examine its route network. “If somewhere is failing to make money, we will stop it,” she says.
Almost two decades since the end of apartheid, South Africa’s racial wounds have not fully healed. A cadet programme – reintroduced last year with an intake of 46 student pilots – has been criticised for rejecting white male candidates on the basis of race.
The airline issued a statement in August explaining that the programme was “specifically designed to redress the very serious demographic and gender imbalance found within SAA’s pilot corps”, with 85% of its pilots white and nine out of 10 of them male. The cadet scheme, it said, was “aimed at individuals from previously disadvantaged backgrounds – including white females – as part of a broader strategy to meet the airline’s transformation targets” of having a workforce representing the racial breakdown of South Africa.
Mzimela describes the initiative as a “big drive to bring in new pilots from different groups in our society” and says the airline is proud that it can meet all its flightcrew needs by employing South African citizens. In 2013, the airline will broaden its scope, launching a flight academy to train up to 250 students from southern Africa. The initiative will be self-financing, with much of the training funded by schemes, to promote “Africanisation”.
Although SAA often has to compete against rivals with more modern long-haul fleets, Mzimela insists the airline “holds its own” when it comes to amenities in its economy and business cabins, pointing to the several awards it has won recently for its service.
“We are very proud of what we have done on service. We have been recognised for the tenth time as the best carrier in Africa [by Skytrax]. Our service experience is something we focus on a great deal.” SAA, adds Mzimela, is also “proud of our safety record and the fact that we have some of the best pilots in the world. A lot of airlines want to steal South African pilots,” she says.